Shared Appreciation Remortgages (SAM)
What is a shared Appreciation Remortgage
Shared appreciation remortgages were available in the UK until the late 1990's.
Shared appreciation remortgages offered a variety of benefits to the applicant in exchange for giving the lender a percentage share in the appreciation of property equal to the loan-to-value ratio. Some SAM lenders offered deferred repayment periods, others offered lower interest rates.
Shared appreciation remortgages work as follows:
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Property value: £200,000
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Interest free loan: £50,000 (25% of the property value)
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Percentage of increased value is sold to lender at 75% of the profit.
Therefore if the borrower owned the property for 20 years after taking out the SAM remortgage, then passed away, the property would then be sold. If it were sold for £200,000, the amount due to the lender would be £25,000 (annualised interest rate 0.0%).
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If it were sold for £400,000, the amount due to the lender would be £50,000 + 75% x £200,000 i.e. £200,000 in total
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If it were sold for £600,000, the amount due to the lender would be £50,000 + 75% x £400,000 i.e. £350,000 in total
Shared Appreciation Remortgages offered an alternative to those consumers who had a limited or no deposit at all.
A Shared appreciation remortgages can also apply to mortgage where the borrower shares the monthly principal and interest payments with another party in exchange for part of the appreciation in value.
Advantages of Shared Appreciation Remortgages
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The borrower made no remortgage repayments whilst they were alive, and retained 25% of the value of their property for their relatives.
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Lower interest rates were on offer but as you will have already read, the lenders loss is recouped with the gain in equity.
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Shared Appreciation Remortgages offered an alternative to those who had a limited or no deposit at all.
Disadvantages of Shared Appreciation Remortgages
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By benefiting from the lower interest rate's and repayment relief the borrower fore fitted the equity gained.
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Limited flexibility when moving house after taking out a shared appreciation remortgage.